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Unfortunately I've recovered all my inactive mailboxes recently, so I don't have one handy to test in order to confirm this. Have you tried adding an exception via the SCC UI?
Perhaps TonyRedmond can help here. Or you can just open a support case to get a proper answer.
I don't think inactive mailboxes are processed by the Managed Folder Assistant even when a retention policies covers all mailboxes. These mailboxes are, after all, "inactive." They will be removed from Office 365 after any holds that cover the mailboxes lapse.
In other words, check what organizational and specific holds exist belonging to eDiscovery cases (Office 365 and Exchange) and remove the holds from any inactive mailboxes. For example, the screen shot shows that a number of inactive mailboxes are under hold. The inactive mailboxes are indicated clearly. If you remove any of these mailboxes from the hold - and it is the last hold the mailbox is covered by - it is removed from Office 365.Inactive mailboxes under hold
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Let me get this straight. You were using old-fashioned SharePoint eDiscovery holds created through the SharePoint eDiscovery Center?
In any case, the document is correct. The old-style holds are deprecated and the holds to use now are those created by eDiscovery cases.
But you've applied a retention policy, not a hold. When you apply a retention policy, the Managed Folder Assistant processes the mailboxes that come within the scope of the policy to apply its settings. The policy will keep information for a certain period or remove information after it reaches a certain age. The only holds that occurs is when a user tries to remove information that should be kept. In that case, Exchange will make sure that to keep a copy of the information until the hold elapses.
You can delete a mailbox that has a retention policy assigned to it, and Office 365 will then convert that mailbox into an inactive mailbox. Eventually, the hold placed by the retention policy will lapse and once all holds are removed from an inactive mailbox, it is permanently removed.
If you want to remove an inactive mailbox immediately, you must first remove it from any holds that apply. Because this is a retention policy, you can restore the inactive mailbox, then exclude it from the retention policy, and then remove it. As no holds apply to the mailbox at this point, it will be removed.
